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Do-it-Yourself Finance, Part 1: Tame the Piles by Douglas Carlsen, DDS

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by Douglas Carlsen, DDS

For the next several issues we'll cover the basics of personal finance. Organization of workspace and documents will be followed by cash flow evaluation, debt control, short-and long-term savings strategies, insurance coverage, estate planning and finally financial scams to avoid.

Sound really boring? This first installment is by far the "heaviest" with a lot of detail. Tear it out of Dentaltown and keep as a reference. After this installment, things get way more fun!

As for "do-it-yourself," no dentist's family can handle all financial projects on its own, yet we all participate at some level. Some dentists tackle it all but most of us need assistance with multiple issues. Referrals to appropriate professionals will be provided during the series.

Article Abtract: Create a bill-paying and important- document space in your home. Have a regular day to tackle the mail and bills. Keep important documents in folders that have clear markings so you can track them down in the future. And have your spouse do all this - just kidding - but do decide on one person to be responsible and have a short summary session once per quarter, or split up the bill paying and share notes once per quarter.

Alternatively, shred everything in sight, grab all the hard drives you can find at home and the office, move to Belize, and chill. However, catalogs, your American Express bill and the patient with sensitive #30 will still find you after a couple weeks.

Let's follow a dental couple, Dr. Bill and Jennifer. Bill is 40, Jennifer is 39 and holding. Two daughters, age 10 and seven, complete the brood. Bill's practice has survived the big scare of 2008- 2011 with a $250,000 net income. Jennifer is a fifth-grade teacher. Their combined income appears more than adequate, yet two full-time jobs and the traveling kid-o-rama circus leaves piles of bills and documents strewn from under the seat of the van, to under the master bed, to behind the Wii.

Organization of one's finances is the basis for wealth-building. Bill and Jennifer need help. Late fees and scattershot bill paying are a habitual headache. The money to pay is there, yet just finding the bills is a major project. They need an easy setup, now!

Christine Benz in 30 Minute Money Solutions says paying bills on time has just as big an impact on budgeting as does reducing spending.1 A simple $20 late charge on the Chase Visa card, seemingly innocuous, becomes more foreboding with late fees and interest. Home, auto and utility late fees, interest and a lower credit rating increase Bill and Jennifer's household expenses about $800 per month or almost $10,000 per year for absolutely nothing!

So here are some steps to take to avoid the chaos of bill-paying and tame the piles. First, designate one sacred spot in your house for all items to land safely. Bill and Jennifer picked the extra bedroom office, primarily for the quiet atmosphere.

Next, use online banking and bill paying through a national or local bank. You may set up each account individually for auto billing with your bank account, as I do, then enter manually into Quicken or Mint. Even easier is to have Quicken or bill-paying software pay the bills automatically from your bank account and post to your software.

Most bills are on autopilot and Bill and Jennifer's scavenger hunt is over with huge savings on late fees.

Next, update your computer's security. Yes, get the firewalls, antivirus software and spyware. For a complete guide go to Consumer Reports Online and search "online security." Subscription fee is $12. Do it!

To use a manual bill paying paper system is also fine, yet I strongly suggest tracking with software like Mint or Quicken.

One centralized calendar is a must, since most bills recur. Keep this calendar on your computer/smartphone or on a wall. Bill and Jennifer have decided that Jennifer will be the family CFO. Jennifer has designated a day every week to devote about one hour to home finance. This recurring event has been placed on her calendar.

The Home Office

Make sure you have:
  • A shredder (Fellowes Powershred 79Ci at Amazon.com for $180 is adequate).
  • A filing cabinet or file box (accordion box at Staples is fine).
  • File folders and labels (Staples has easy setups. Don't waste time printing your individual labels... just print by hand).
  • Safe deposit box or home safe (First Alert 2096DF, $310 at Amazon.com).
Back to the sacred extra bedroom-office. Separate all mail into four stacks:
  • Bills to be paid
  • To do/read
  • File
  • Shred
Bills to be paid and to do/read are on the left side of her desk, file and shred on the right.

Steps to organize:
  1. Pay bills or check your online bills for any mistakes and either shred or file any receipts.
  2. Read any materials in the to do/read stack and either shred or file.
  3. Shred:
    • Credit card offers and anything with your name preprinted
    • Canceled checks not to be deducted for taxes
    • All credit card receipts after reconciliation
    • Bank deposit slips after confirmation with monthly statement
    • Utility bills unrelated to taxes
    • Credit card statements, if unrelated to taxes
  4. File at home in accordion file or file cabinet:
    • List of important financial people: financial adviser, loan officer, doctors, insurance agents, attorneys, CPA, teachers, pet sitters, etc.
    • Paper bank statements after reconciliation for current year only. Electronic records? No need to file.
    • Loan statements
    • Credit report for current year (shred when receive a new report)
    • Home repairs and services for the current year only
    • Home upgrade and improvement receipts for future sale of home
    • Taxes: anything related to current year - property tax, 1099s, 1040s, paycheck stubs, charitable contributions, utilities, etc.
    • Investment statements for the current year: OK to keep electronic records only. You might have multiple files for retirement, college, etc. Also keep any written correspondence for legal purposes forever. Keep records of transactions for three years.
    • Utilities for the past year. Shred if not used for taxes at end of year.
    • Medical records and receipts for current year. Shred if not used for taxes. Put anything important, such as vaccinations, into safe deposit or safe.
    • Warranties and owner's manuals and receipts for any item worth more than $500
    • Auto records (shred when the car is sold)
    • Homeowners and auto insurance documents (keep for two years)
    • Year-end investment statements and personal correspondence (keep forever)
    • Copy of estate documents such as will, living will, power of attorney (originals go to your safe deposit or home safe and with estate attorney)
  5. Files to keep in safe deposit or home safe:
    • Tax records (keep forever along with all supporting documentation. After seven years, I put in an accordion file and keep at home. Otherwise, you'll run out of space.)
    • Birth, death, marriage, adoption and important medical records, such as vaccinations
    • Car titles and home deeds
    • Loan documents (keep forever)
    • Social Security cards
    • Education (diplomas, enrollment records, grade cards)
    • A video of all your home possessions, in case of fire or flood. Do in January of even-numbered years.
    • Estate documents such as will, living will, power of attorney
    • Life and disability insurance documents
    • Contracts
In January, clear out any non-essentials from your home files. Shred the following if not tax-related: bank statements, home repairs and services, utility statements, medical receipts. Shred homeowners and auto policies after two years, and anything else you won't need in the future.

For investments, hold all year-end statements and personal correspondence indefinitely - transaction statements for three years.

I personally place all "keep" files, such as 2012 tax documents, bank and loan statements for 2012, or anything else from the past year into a separate accordion or filing cabinet area marked with the proper year (2012). I remake new files as needed for 2013.

Total time spent for this year-end process is about 30 minutes; as you only transfer a few old 2012 files into a 2012 accordion or file cabinet file and hand write a few new files for 2013.

References
  1. Christine Benz, 30 Minute Money Solutions, John Wiley and Sons, Inc., Hoboken, NJ, 2010, 34.
Author's Bio
Dr. Douglas Carlsen has delivered independent financial education to dentists since retiring from his practice in 2004 at age 53. For Dentists' Financial Newsletter, visit www.golichcarlsen.com and find the "newsletter" button at the bottom of the home page.

Additional Carlsen Dentaltown articles are at: www.dentaltown.com. Search "Carlsen." Videos available at: www.youtube.com/user/DrDougCarlsen. Contact Dr. Carlsen at drcarlsen@gmail.com or 760-535-1621.
Dentaltown Magazine
April 2024
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